Fair Go: The loophole you need to know if you're the innocent party in a car crash

It was an early summer's evening. Vivien Daley was on a short trip in her little Honda Jazz from her house in Christchurch to pick up a takeaway. It was going to cost about $20, so a cheap night she thought.

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It is something every New Zealander should be aware of, Fair Go reports. Source: Fair Go

Little did she know that moments later she'd be the innocent party in a serious crash and would be thousands out of pocket. At 67, still working part-time to try to save for a pension fund, this was no small matter. And she couldn't believe that no payout was forthcoming, given both herself and the other driver were insured. So how did this come about?

For a start, there was no doubting her innocence. Vivien was travelling at an appropriate speed on the busy Tunnel Road, when she was suddenly rammed from behind, time and again by a Hi-lux, sending her into a terrifying spin across the highway, and ending up in a ditch. Miraculously, she suffered only minor injuries, but then her long, stressful battle to get compensation began.

First she was told the other driver had no insurance. This wasn't ideal, but at least she'd then be eligible for the Innocent Party clause of her own Third Party insurance with AMI. This would cover her for up to $3000 in damages. It would at least help towards a new car, but not cover her storage costs, as she had to hold her car in a car yard at $23 a day waiting for assessment by insurers. Still, better than nothing, she thought.

Then a few weeks later, she was told that the other driver had made a claim with Vero. She assumed she'd be compensated in full through his insurance policy. Given her storage costs were now up to $2500, that was very welcome news. But that's where she was wrong.

That's because the other driver claimed the accident was caused by a medical event. Unbeknown to many people, when a medical event is to blame for an accident, the driver is considered not liable for any damages, as the situation was out of their control.

"Everyone I've told is astounded this can happen," said Vivien. "I'm totally innocent, nearly killed and yet I'm the person who ends up having to pay."

It's surprising but true. If a medical event occurs, no pay-out is made to the innocent party by the other driver's insurance. Vivien thought this was very unfair but Tim Grafton, Chief Executive of the Insurance Council said, "it's not a question of fairness, it's what the law says around legal liability. You're not liable if a medical event occurred (and caused the accident) that's the way it is".

Medical events include the likes of seizures, heart attacks and diabetic reactions. They have to cause a sudden loss of consciousness and be unforeseen, and obviously a medical professional has to confirm that the event was indeed responsible. In Vivien's situation, this has yet to be proven for the other driver, as he is now before the court for reckless driving.

If a medical event if proven, it's a double blow to Vivien. Not only would it mean that Vero wouldn't give her a payout from their customer's insurance, but it would also mean her own insurer AMI wouldn't pay her under the Innocent Party clause because this only happens if the other driver has no insurance at all. This is made clear in their policy document on this matter, and was reiterated to Vivien in an email from the company.

This would also be the case if the driver didn't have a medical event, but was found guilty of reckless driving. This is because if a criminal offence is been committed, an insurer won't pay out.

Vivien felt all was lost and asked Fair Go to expose this loophole even if it did nothing to help her. We checked out the situation and heard from the Insurance Council that there may be some wriggle room when it came to the Innocent Party Protection clause. We got in touch with Vivien's insurance company for clarification, and it seemed that in certain circumstances there might be some leeway.

And so it was, after four months of frustration and worry for Vivien since the accident, an email from AMI comes out of the blue to say she'd be paid $3000 for the car immediately.

The company explained it had been provided with some "additional information which has resulted in us being able to accept Vivien's claim". Plus, in even better news, they'd go beyond the cap of $3000 and cover her towing and storage costs. Vivien still thinks the lack of a payout if a medical event occurs is unfair, but she's relieved to see the Innocent Party Protection clause can at least help - it may just take some persistence to make it happen.